Optimizing and improving your business’ cash flow is one the most important steps to growing or scaling your business. For a business to be successful, it must have sufficient cash flow so you can achieve your business goals without getting stuck along the way.
Having the right cash flow can be the difference between staying stuck struggling to pay your bills in your business on time and finally growing your business. In general, there are 4 main strategies you can use to improve and maintain a sufficient cash flow.
While you can read all about how to pick the right strategy to improve your cash flow so you can achieve your growth goals, you first need to figure out what your cash flow looks like and how it impacts your goals. If you don’t know how cash flows in your business yet, check out my small business finance course where I help you get cash flow reports and projections set up.
Benefits of Improved Cash Flow
So why should you even care about improving your cash flow in your business? Cash flow is the secret to growing. The benefits of improved cash flow can make a huge difference in achieving your goals.
For one, having the right cash flow gives your company the flexibility to jump on new business opportunities, save up to invest in tools or assets that can help your business grow, or brand out into new markets more easily. Another benefit of improved cash flow is that it helps your business avoid a cash crisis when things change—and we all know what the pandemic did to companies that had poor cash flow.
If you’re unsure why you should improve your cash flow, ask yourself these questions that will reveal the true nature of having the right cash flow in your business:
- What would having the cash the moment you need it mean for your business?
- What risks could you take because you weren’t stressed about money?
- What could you do instead of chasing late invoices?
That’s why improving your cash flow matters, beyond just paying your bills on time.
Identifying how cash flow can be improved can put your business in a much better financial position and make your life way easier!
How to Increase Cash Flow In Your Business
I like to think of changing the flow of money in your business as pulling different levers to make different things happen. Each lever in your business creates a different effect and you can pick and choose which levers are the right ones to pull for your goals.
Using cash flow projections can help you identify trouble spots before they happen. If you’re struggling with the basics of cash flow, fixing cash flow problems should be your first step. But what about when you’ve taken care of problems and want to take the next step? How can you improve cash flow in your business?
Keep in mind that increasing cash flow in your business means that more money is flowing—but cash flow has nothing to do with how profitable your business actually is. Instead, you want to improve your cash flow so your money is where you need it when you need it.
There are 4 main ways to improve cash flow in your business. Each is a different lever that can create different effects in your business and each impacts your growth goals in different ways. Let’s dig into each!
1. Make Your Expenses More Efficient
There’s a reason why everyone always starts improving cash flow by cutting expenses! This is the easiest tactic because it's completely within your control.
When you start to grow, however, it can be much harder to cut any additional expenses. And your expenses also start to increase as you grow your business too so there’s only so much you can do to spend less cash. After you’ve reached an optimal level of spend, improving your cash flow means getting more out of your resources without increasing costs.
Making sure your expenses are being used to their full capacity improves your cash flow because the money you spend makes you more money. More money coming in from your expenses means better cash flow!
2. Collect Cash More Effectively
If I had a dime for every creative that said they didn’t get paid on time—or paid at all! Collecting cash faster and making sure invoices are paid is the next problem you can solve in your business. It’s also where setting up systems to reduce the time you spend collecting cash can really benefit you.
If you have overdue invoices from clients just sitting out there, work on collecting from them. That cash is already due to you, you just need to figure out how to get it in your bank account. While you can resort to chasing down clients, that can mean spending lots of time and effort just to get paid.
Setting up different systems in your business for payments, like accepting credit cards and using invoicing software to stay on top of unpaid invoices, can make a huge difference to getting paid faster with less time.
If you can improve the timelines of when you get paid and how long it takes from invoice to pay date, you can improve your cash flow.
3. Spend Cash at The Right Rate
Should you pay up front for all that software to get a discounted rate or pay every month? That’s the kind of question that knowing your business’ cash flow can help you answer and a good way to improve your cash flow while saving money.
But once you’ve got enough coming in to consistently cover expenses, thinking about how to optimize when you spend money can make a difference in your cash flow overall. Hello annual software discounts!
And if you’ve taken on business debt to help grow your business, talk about the savings on interest if you pay attention to the rate you’re paying down that debt. The faster you pay off expenses that accumulate interest, the more money you’ll save.
But figuring out if that’s the right choice for your business’ cash flow and goals can help you improve your cash flow overall. Paying debts faster or for annual subscriptions may not be the right choice for you if you want to use money differently in your business to grow—it’s all about finding the right rate based on cash flow.
4. Rethink How You Make Money
Sure, you can get more cash by selling more of your products or services. Or you can do what’s called a cash infusion - find some cash from other sources besides sales like a loan or a grant. But both of those can be a big undertaking both for your business and personally.
More importantly, rethinking how you make money and where you’re spending your time in your business can help you improve your cash flow. For instance, if you know from your financial reports that time spent marketing a specific product in your business is ridiculously effective, you can maximize how you're making money by spending time on that instead of other things in your business that are less profitable.
Transitioning your thinking from “I just need to sell more to bring in more cash!” to “how can I more efficiently bring in more cash for less time or expense” is the best way to improve your cash flow and make your business more profitable.
Start Improving Your Cash Flow
Now that you know why improving your business’ cash flow is so important, it’s time to actually start doing the things to improve it. The first step, however, is understanding your cash flow in your business and getting a clear picture of your small business financial health.
If you are struggling with your company’s cash flow or want to increase cash flow for your small business, I’m guessing you have no clue how your business is really doing financially. You have to understand your cash flow in the first place if you want to optimize it!
Sign up to get my small business financial health check and get started getting a handle on your finances. I’ll walk you through how to get a clear picture of your business’ finances and identify trouble spots in my free guide.
After that, if you really want to take the next step to start growing your business, it’s time to get more familiar with your business numbers and how you can improve your money management. I teach money management skills for entrepreneurs in Not Rocket Finance where I break down accountant-speak into normal human.